7) Which of the following statements are TRUE?

Statement I: Statement II: Statement III:

As you increase the interest rate, the future value of an investment increases. As you increase the length of time (to receive some lump sum), the present value of the investment increases.

The present value of an ordinary annuity is larger than the future value of an ordinary annuity.

Assignment 2

1. i) Statement I only

2. ii) Statements I and II only

3. iii) Statements II only

4. iv) Statements I and III only

8. 8) You are expecting twins and want to have $500,000 by the time your two kids go to college. You believe you can earn a return of 7%/year. You have nothing saved up. But you can contribute $8,000 each year going forward. How many years will it take you to grow your money to $500,000?

   1. i) 16.78 years

   2. ii) 21.93 years

   3. iii) 24.86 years

   4. iv) 59.38 years

10) Herbilux Botanicals forecasts the following cash flows to occur at the end of each year for a project. If the firm's discount rate is 9%/year, what is the present value of the project?

Year 1

2 3 4 5

Cash flow $ 697,000 $ 631,000 $ 574,000 $ 898,000 $9,981,000

which one is correct:

$7,634,980

$8,015,517

$8,736,914

$12,268,998